Euro Zone’s Fizzling Growth Seen to Back Draghi Cut Case

A gold finial stands above the Bank of Spain, or central bank, as a Spanish national flag flies above in Madrid. Spain emerged from recession during the quarter, according to data already released. Photographer: Antonio Heredia/Bloomberg

Nov. 11 (Bloomberg) -- Euro-area growth data this week may
show the region’s nascent recovery slowing to a crawl,
supporting Mario Draghi’s case for an interest-rate cut to help
the economy get back to its feet.

Gross domestic product in the region rose just 0.1 percent
in the third quarter, according to the median forecast of 41
economists in a Bloomberg News survey. In the 3 1/2 hours before
that report on Nov. 14, economists predict a series of data
releases to show growth slowing in Germany and stalling in
France, with Italy remaining mired in an unprecedented slump.

Such an outcome would confirm that the recovery is grinding
after a second-quarter growth spurt of 0.3 percent that ended
the region’s record-long recession. The data are due one week
after the European Central Bank president’s surprise rate cut to
0.25 percent. Draghi said at the time that the euro zone faces
the danger of a “prolonged” period of low inflation.

“There are a few minor bright spots, for example Spain,
but Italy will continue to remain in contraction and growth in
France will likely be flat at best,” said Nick Matthews, a
London-based economist at Nomura International Plc. “That plays
into the scenario the ECB is seeing, which is a very weak and
fragile recovery.”

GDP Marathon

The Stoxx Europe 600 Index rose 0.4 percent to 323.93 at
3:56 p.m. in London, as two shares advanced for each one that
fell. The benchmark measure has gained for five straight weeks,
trading near its highest valuation since 2009. The euro
increased 0.3 percent to against the dollar today, trading at
$1.3407.

The European Union’s statistics office in Luxembourg will
publish GDP data for the 17-nation euro area at 11 a.m. on Nov.
14, part of a marathon of releases that begin with France’s
report at 7:30 a.m. in Paris. That economy probably stagnated,
according to the median forecast of 22 economists.

The French data will follow less than a week after the
country’s Nov. 8 downgrade to AA by Standard and Poor’s, which
said that the current policies of President Francois Hollande’s
government are “unlikely to substantially raise France’s
medium-term growth prospects.”

Italy, which releases data in Rome at 10 a.m. on the same
day, probably suffered a ninth straight quarter of contraction.
Antonio Golini, acting chairman of Istat, the country’s national
statistics office, told lawmakers on Oct. 29 that the economy
shrank in the three months through September, and predicted that
GDP will slump 1.8 percent this year.

‘Modest Clip’

While those two countries represent the region’s second and
third-biggest economies, Holger Schmieding, chief economist at
Berenberg Bank in London, said there’s enough momentum elsewhere
in the currency bloc to drive an acceleration in growth toward
the end of the year.

“Of course, the weakness in France and Italy poses a
downside risk,” he said. “But the euro zone economy is
expanding at a modest clip. Most crisis countries have left
their savage adjustment-recession behind and now seem to be
growing again. Leading indicators project a further gradual
firming of economic growth.”

Spain emerged from recession during the quarter, according
to data already released. Portugal, which publishes its GDP
report an hour after the euro area on Thursday, escaped from its
own slump during the prior three months.

Forecast Cut

For Germany, the region’s largest economy, economists
predict growth slowed to 0.3 percent in the quarter, less than
half of the 0.7 percent pace seen in the prior three months.
Those data are due for release the same day at 8 a.m. by the
Federal Statistics Office in Wiesbaden.

While Germany’s economic strength does continue to support
the region’s recovery, the European Commission last week cut its
forecast for euro-zone growth in 2014, anticipating 1.1 percent
expansion instead of the 1.2 percent forecast in May. Officials
see unemployment averaging 12.2 percent next year, higher than
the 12.1 percent they predicted six months ago.

The ECB halved its benchmark rate with a quarter-point cut
to a record low on Nov. 7 after inflation slowed to 0.7 percent
in October, less than half the central bank’s target level of
just under 2 percent. Draghi kept up his pledge to keep rates at
current levels or lower for an extended period and repeated the
ECB’s view that economic risks remain “on the downside.”

“Further ECB policy support is needed to support the
economy,” said Ben May, an economist at Capital Economics Ltd.
in London. At the same time, “even if the ECB does loosen
monetary policy in the next month or two, it is unlikely to
resolve the fundamental economic problems that the euro-zone
still faces.”